The behaviour of the euro member states during the crisis has not been similar, neither in terms of the policy responses nor in terms of economic performance. There have been domestics factors, both economic and political in nature, that explain, first, the different impact of the financial and economic crisis, and second, the different policy responses to the crisis,
and, third, the different prospects for the euro (European) economies.

The Spanish economy has been shocked tremendously by the financial crisis unleashed in 2007 and the subsequent economic crisis. This impact has been greater than in most European or euro economies. Thus, to mention a few examples, according to the data of the AMECO database, the rate of GDP growth in Spain in 2011 represents 42 per cent of that registered in 2007, whilst in other European economies the gap between the
GDP rates of growth registered in 2007 and 2011 is smaller: 73 per cent in Germany, 86 per cent in France, 89 per cent in Italy, or 79 per cent in the U.K.

According to data from the AMECO database, Spain has lost 2 million jobs since 2008 (9.7 per cent of employment existing in 2007). Only Estonia (-9 per cent) and Latvia (-15.3 per cent) have similar negative records. The employment loss in Spain represents 90.2 per cent of total employment loss in the EU-27, and 100.7 per cent of employment lost in the euro area But, compared with previous similar episodes, the current crisis is not only more intense, it is also more lasting. Thus, in the recession of the early nineties, the trough of the recession took place in 1993Q1, but four quarters later, in 1994Q1, the GDP was again growing by over 2 per cent. On the contrary, the trough of the current crisis took place in 2009Q2. However, two years later, in 2011 Q3, Spain is growing on a year-to-year
basis at a rate of 0.8 per cent (the quarter-to-quarter growth rate was 0.0 per cent). The current Minister of Economy and Competitiveness has recently stated that it is likely that Spain entered a new recession (with at least two quarters with negative GDP growth) at the end of 2011.

What explains this change of scenario, and the more severe length andintensity of the Spanish crisis, in comparison to that suffered by other European countries? It is obvious that the origin of the global and European crises is not in Spain, and that the Spanish economy is, like most economies, paying the costs of a crisis generated abroad. It is not less obvious
that the incidence of the crisis, deeper than in other similar economies, is explained by a set of elements that are distinctive to the Spanish economy, namely, the structural problems of the Spanish labour market, the high dependence of the Spanish economy on the international financial markets, and, lastly, the wrong strategy of fiscal policy implemented
before and during the first years of the crisis.

In this chapter, we will focus on the third element,2 arguing that the mismanagement of fiscal policy before the crisis, adopting a pro-cyclical stance during the expansion, contributed to exacerbate the existing imbalances before the crisis. Moreover, the fiscal measures implemented at the first stage of the crisis contributed to increase the fiscal imbalances
without having the expected positive economic impact, resulting in a huge fiscal deficit, whose adjustment is the main objective of the current Spanish fiscal policy. These problems have been worsened by the bad fiscal outcomes of the Spanish regional governments, whose imbalances are significantly contributing to the deterioration of the public finances of the whole public sector, making more difficult the achievements of the
fiscal targets set in the Spanish Stability Programme.
This chapter is structured as follows: In the next section, we analyse the behaviour of public finances and fiscal policy in Spain in the years preceding the onset of the current crisis. Then we analyse the fiscal policy implemented after 2008. The fourth section focuses on the behaviour of the fiscal imbalances of the Spanish regional governments. The final section summarises and concludes.